AI Drafter 
TaxTMI 
TaxTMI 
2024 (12) TMI 427
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....nd that appellant company does not have a license from RBI as NBFC in as much as (i) The appellant company is carrying on NBFC activities and that classification of income is based on the nature of activities on a regular basis; and (ii) Interest income has been consistently taxed as business income in earlier years and there is no change in facts in the current year. 2. The learned CIT(A) has erred in confirming the disallowance of expenses of Rs 1,05,20,522 as per financial statements on the ground that is excessive and they are incurred with a view to reducing tax liability in as much as expenses are genuine and the same are incurred wholly and exclusively for the purpose of business. 3. Without prejudice to Ground No.2, expenses of Rs. 1,05,20,522 include depreciation as per books of Rs. 13,05,261 which is already disallowed in the computation of income. 4. Without prejudice to the above, the learned CIT(A) ought to have directed the AO to give a deduction of expenses under Section 57 against interest income and that reliance placed on the decision of SC in the case of Goetze India 284 ITR 323 by the AO is misplaced." 3. At the outset, it is noted ....
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....ssee, resulting in the entire business receipts of the assessee being subjected to tax, as supposed to loss returned by the assessee. The ld.counsel for the assessee drew our attention to the facts of the case by pointing out that the assessee had returned interest income of Rs. 9,96,855/- under the heard "income from business and profession" and has claimed expenses to the tune of Rs. 1,05,20,522/- against the same. Thus, the assessee has returned net loss under the head "business and profession". The AO treated this interest income as taxable under the head "income from other sources" and further denied any claim of expenses against the same, resulting in the entire interest income of Rs. 9,96,855/- being subjected to tax. The Ld.CIT(A) confirmed the same. The argument of the ld.counsel for the assessee, before us, was that despite the assessee demonstrating that it was in the business of financing and had returned identical interest income from year-toyear under the head "business income" and also claimed expenses against the same, both the Revenue authorities had rejected the assessee's claim and treated the interest income as taxable income from other sources denying any....
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....f his order as under, bringing out all the above contentions. "5.1 During the course of appellate proceedings, the written submissions filed by the appellant are reproduced as under: "2.2. The assessee company is engaged in the business of NBFC. The objects as per MOA are as under. "1. To acquire and hold shares, stocks, debenture, debenture-stocks, bonds, obligations and securities issued or guaranteed by any company carrying on business in India and debentures, debenture stocks, bonds, obligations and securities issued or guaranteed by and Central or State Government. 2. To sell any such shares, stocks, debenture, debenture-stocks, bonds, obligations or securities by original subscription tender, Purchase on cash basis, exchange or otherwise and to subscribe for the same either conditionally or otherwise and to guarantee the subscription thereof, and to exercise and enforce all the rights and powers conferred by or incidental to the ownership thereof. 3. To sell, improve, alter, manage, develop, exchange, lease, mortgage, enfranchise, dispose of, turn to account or otherwise, deal with all or any part of the land, properties, assets, o....
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....ture of Rs. 1,05,20,521 is incurred wholly and exclusively for the business purpose and therefore there is no question of disallowance. The details of such expenditure is as under. Employee Benefit Expenses Rs.50.63,500 Depreciation as per Books Rs.13,05,261 Other Expense (Incl. donation of Rs. 1,00,000) Rs.41,51,760 Total Rs.1,05,20,521 The Break-up of Expenses of Rs. 1,05,20,521 as per P & L Account as under: Particulars For the Year ended on 31-03-2016 For the Year ended on 31-03-2015 Employee Benefit Expenses [As per Schedule-16] 50,63,500 50,10,000 Depreciation as per Books [As per Schedule-6] 13,05,261 6,75,751 Other Expenses [As per Schedule-18] 41,51,760 23,38,628 Total: 1,05,20,521 80,24,379 From the above, it may please be seen that the entire expenditure is for the purpose of business and that it is allowable as deduction against business income. Just because there is no registration as NBFC, the entire expenditure cannot be disallowed. The registration as NBFC is governed by rules of RBI. The matter is pending be....
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....idered the doubtful debts, he would have not taken a view to treat interest as income from other sources. 3.5 As mentioned above the assessee company is in the business of financing. The interest income earned by the assessee company is as a part of its business activity. The interest income earned is from the loan given by the assessee company to various entities. And therefore the source of such interest income is the business of the assessee and therefore it is chargeable to tax as business income only because the source of income is important factor to determine the head under which it will be taxable. This fact is also accepted by the department since many years 4 From the above, it is clear that the assessee is carrying on business activity since long and that the expenses incurred for business is also as compared to the activity is not high Since this is consistent the method which is accepted by the Department in the past, the AO cannot change the method in this year. The consistent method should be followed. This view is held by the Supreme Court in the case of Radhasoami Satsang V/s. CIT 193 ITR 321 (SC) [copy enclosed]. The Supreme Court held as under ....
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....usiness income and allowing the claim of expenditure against it, be restored. 5. The Ld.DR for the Revenue, however, vehemently supported the orders of authorities below. 6. We have heard both the parties and perused the material available on record as well as also gone through the orders of the authorities below. We are in complete agreement with the ld.counsel for the assessee that the order of the ld.CIT(A) holding the interest income earned by the assessee as income from other sources and denial of claim of expenditure against the same is not in accordance with law and is grossly incorrect. As rightly pointed out by the ldc.counsel for the assessee, the assessee had substantiated its claim of interest income earned being in the nature of business income by demonstrating that its Memorandum of Association and Articles of Association listed out about carrying out the financing activity as its business activity. The assessee had also demonstrated that in all preceding years, for a very long time, the assessee had returned interest income as its business income and this had never been disturbed by the Revenue Department. We have also noted that the assessee had given plausibl....